6.

Spouses Ramos vs Spouses Heruela

Civil Law; Contracts; Sales; Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional.—
Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional. A contract of sale is absolute
when title to the property passes to the vendee upon delivery of the thing sold. A deed of sale is absolute when there is no
stipulation in the contract that title to the property remains with the seller until full payment of the purchase price. The sale is
also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract the moment the vendee
fails to pay within a fixed period. In a conditional sale, as in a contract to sell, ownership remains with the vendor and does not
pass to the vendee until full payment of the purchase price. The full payment of the purchase price partakes of a suspensive
condition, and non-fulfillment of the condition prevents the obligation to sell from arising.

Same; Same; Same; The Supreme Court ruled that to be a written contract, all the terms must be in writing, so that a contract
partly in writing and partly oral is in legal effect an oral contract.—In Manuel v. Rodriguez, et al., the Court ruled that to be a
written contract, all the terms must be in writing, so that a contract partly in writing and partly oral is in legal effect an oral
contract. The Court reiterated the Manuel ruling in Alfonso v. Court of Appeals: x x x In Manuel, “only the price and the terms of
payment were in writing,” but the most important matter in the controversy, the alleged transfer of title was never “reduced to
any written document.[”] It was held that the contract should not be considered as a written but an oral one; not a sale but a
promise to sell; and that “the absence of a formal deed of conveyance” was a strong indication “that the parties did not intend
immediate transfer of title, but only a transfer after full payment of the price.” Under these circumstances, the Court ruled
Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the contract in controversy—a
contract to sell or promise to sell—“where title remains with the vendor until fulfillment of a positive suspensive condition,
such as full payment of the price x x [x].”

Same; Same; Same; Maceda Law; In contracts to sell, R.A. No. 6552 applies.—Articles 1191 and 1592 of the Civil Code are
applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals, the Court declared: x x x
Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an
event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the
buyer on installments in case he defaults in the payment of succeeding installments x x x. Sections 3 and 4 of RA 6552 provide:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including
residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic
Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the
payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments
made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments
on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional
five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of
the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments,
deposits or options on the contract shall be included in the computation of the total number of installments made. Sec. 4. In
case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty
days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.

Same; Same; Same; Rescission; The Supreme Court ruled that the vendor could go to court to demand judicial rescission in lieu
of a notarial act of rescission. An action for reconveyance is not an action for rescission.—In Olympia Housing, Inc. v. Panasiatic
Travel Corp., the Court ruled that the vendor could go to court to demand judicial rescission in lieu of a notarial act of
rescission. However, an action for reconveyance is not an action for rescission. The Court explained in Olympia: The action for
reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent
buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any
time prior to the institution of the action for reconveyance. x x x x x x x x x Not only is an action for reconveyance conceptually
different from an action for rescission but that, also, the effects that flow from an affirmative judgment in either case would be
materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not
necessarily the situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often
termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial
act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a period.

Same; Same; Same; For breach of obligation, the court, in its discretion, and applying Article 2209 of the Civil Code, may award
interest at the rate of 6% per annum on the amount of damages.—For the breach of obligation, the court, in its discretion, and
applying Article 2209 of the Civil Code, may award interest at the rate of 6% per annum on the amount of damages. The
spouses Heruela have been enjoying the use of the land since 1982. In 1995, they allowed their daughter and son-in-law, the

Page 1 of 6
 spouses Pallori, to construct a house on the land. Under the circumstances, the Court deems it proper to award interest at 6%
per annum on the balance of the purchase price.

Same; Same; Same; Damages; Attorney’s Fees; Article 2208 of the Civil Code provides that subject to certain exceptions,
attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. The
policy of the law is to put no premium on the right to litigate.—Article 2208 of the Civil Code provides that subject to certain
exceptions, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of
stipulation. None of the enumerated exceptions applies to this case. Further, the policy of the law is to put no premium on the
right to litigate. Hence, the award of attorney’s fees and litigation expenses should be deleted. Ramos vs. Heruela, 473 SCRA 79,
G.R. No. 145330 October 14, 2005

The Case

Before the Court is a petition for review[1] assailing the Decision[2] dated 23 August 2000 and the Order dated 20 September
2000 of the Regional Trial Court (trial court) of Misamis Oriental, Branch 21, in Civil Case No. 98-060. The trial court dismissed
the plaintiffs action for recovery of ownership with damages.

The Antecedent Facts

The spouses Gomer and Leonor Ramos (spouses Ramos) own a parcel of land, consisting of 1,883 square meters, covered by
Transfer Certificate of Title (TCT) No. 16535 of the Register of Deeds of Cagayan de Oro City. On 18 February 1980, the
spouses Ramos made an agreement with the spouses Santiago and Minda Heruela (spouses Heruela) [3] covering 306 square
meters of the land (land). According to the spouses Ramos, the agreement is a contract of conditional sale. The spouses
Heruela allege that the contract is a sale on installment basis.

On 27 January 1998, the spouses Ramos filed a complaint for Recovery of Ownership with Damages against the spouses
Heruela. The case was docketed as Civil Case No. 98-060. The spouses Ramos allege that out of the P15,300[4] consideration for
the sale of the land, the spouses Heruela paid only P4,000. The last installment that the spouses Heruela paid was on 18
December 1981. The spouses Ramos assert that the spouses Heruelas unjust refusal to pay the balance of the purchase price
caused the cancellation of the Deed of Conditional Sale. In June 1982, the spouses Ramos discovered that the spouses Heruela
were already occupying a portion of the land. Cherry and Raymond Pallori (spouses Pallori), daughter and son-in-law,
respectively, of the spouses Heruela, erected another house on the land. The spouses Heruela and the spouses Pallori refused
to vacate the land despite demand by the spouses Ramos.

The spouses Heruela allege that the contract is a sale on installment basis. They paid P2,000 as down payment and made the
following installment payments:

31 March 1980 P200

2 May 1980 P400 (for April and May 1980)
20 June 1980 P200 (for June 1980)
8 October 1980 P500 (for July, August and part of
September 1980)
5 March 1981 P400 (for October and November
1980)
18 December 1981 P300 (for December 1980 and part of
January 1981)

The spouses Heruela further allege that the 306 square meters specified in the contract was reduced to 282 square
meters because upon subdivision of the land, 24 square meters became part of the road. The spouses Heruela claim that in
March 1982, they expressed their willingness to pay the balance of P11,300 but the spouses Ramos refused their offer.

The Ruling of the Trial Court

In its Decision[5] dated 23 August 2000, the trial court ruled that the contract is a sale by installment. The trial court ruled that
the spouses Ramos failed to comply with Section 4 of Republic Act No. 6552 (RA 6552), [6] as follows:

SEC. 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Page 2 of 6
The dispositive portion of the Decision reads:

WHEREFORE, the complaint is hereby dismissed and plaintiff[s] are ordered to execute the corresponding
Deed of Sale in favor of defendants after the latter have paid the remaining balance of Eleven Thousand and
Three Hundred Pesos (P11,300.00).

Plaintiffs are further ordered to pay defendants the sum of P20,000.00, as Attorneys fees and P10,000.00 as
litigation expenses.

SO ORDERED.[7]

In an Order[8] dated 20 September 2000, the trial court denied the spouses Ramos motion for reconsideration.
Hence, this petition.

The Issues

The spouses Ramos raise the following issues:

I. Whether RA 6552 is applicable to an absolute sale of land;

II. Whether Articles 1191 and 1592 of the Civil Code are applicable to the present case;

III. Whether the spouses Ramos have a right to cancel the sale;

IV. Whether the spouses Heruela have a right to damages.[9]

The Ruling of the Court

The petition is partly meritorious.

The Agreement is a Contract to Sell

In its Decision, the trial court ruled on whether the contract made by the parties is a conditional sale or a sale on
installment. The spouses Ramos premise is that since the trial court ruled that the contract is a sale on installment, the trial
court also in effect declared that the sale is an absolute sale. The spouses Ramos allege that RA 6552 is not applicable to an
absolute sale.

Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional. A contract of sale is
absolute when title to the property passes to the vendee upon delivery of the thing sold. [10] A deed of sale is absolute when
there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase
price.[11] The sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract the
moment the vendee fails to pay within a fixed period.[12] In a conditional sale, as in a contract to sell, ownership remains with
the vendor and does not pass to the vendee until full payment of the purchase price. [13] The full payment of the purchase price
partakes of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from arising.[14]

In this case, the agreement of the parties is embodied in a one-page, handwritten document.[15] The document does
not contain the usual terms and conditions of a formal deed of sale. The original document, elevated to this Court as part of the
Records, is torn in part. Only the words LMENT BASIS is legible on the title. The names and addresses of the parties and the
identity of the property cannot be ascertained. The agreement only provides for the following terms of the sale:

TERM[S] OF SALE:

PRICE PER SQM P50.00 X 306 SQM P 15,300.00

DOWN PAYMENT (TWO THOUSAND PESOS) 2,000.00
BALANCE PAYABLE AT MINIMUM OF P200.00 P 13,300.00
PER MONTH UNTIL FULLY PAID =======

In Manuel v. Rodriguez, et al.,[16] the Court ruled that to be a written contract, all the terms must be in writing, so that
a contract partly in writing and partly oral is in legal effect an oral contract. The Court reiterated the Manuel ruling in Alfonso
v. Court of Appeals:[17]
Page 3 of 6
 xxx In Manuel, only the price and the terms of payment were in writing, but the most important
matter in the controversy, the alleged transfer of title was never reduced to any written document.[] It was
held that the contract should not be considered as a written but an oral one; not a sale but a promise to sell;
and that the absence of a formal deed of conveyance was a strong indication that the parties did not intend
immediate transfer of title, but only a transfer after full payment of the price. Under these circumstances, the
Court ruled Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the
contract in controversy a contract to sell or promise to sell where title remains with the vendor until
fulfillment of a positive suspensive condition, such as full payment of the price x x [x].

The records show that the spouses Heruela did not immediately take actual, physical possession of the land.
According to the spouses Ramos, in March 1981, they allowed the niece of the spouses Heruela to occupy a portion of the land.
Indeed, the spouses Ramos alleged that they only discovered in June 1982 that the spouses Heruela were already occupying
the land. In their answer to the complaint, the spouses Heruela and the spouses Pallori alleged that their occupation of the land
is lawful because having made partial payments of the purchase price, they already considered themselves owners of the
land.[18] Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos retained their ownership of the land.
This only shows that the parties did not intend the transfer of ownership until full payment of the purchase price.

RA 6552 is the Applicable Law

The trial court did not err in applying RA 6552 to the present case.

Articles 1191[19] and 1592[20] of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo
v. Court of Appeals,[21] the Court declared:

xxx Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title
from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the
payment of succeeding installments xxx.

Sections 3 and 4 of RA 6552 provide:

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments,
including residential condominium apartments but excluding industrial lots, commercial buildings and sales
to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him, which is hereby fixed at the rate of one month grace period for
every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total payments
made and, after five years of installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total
number of installments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace
period of not less than sixty days from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Page 4 of 6
 In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of RA 6552 applies.
However, there was neither a notice of cancellation nor demand for rescission by notarial act to the spouses Heruela.
In Olympia Housing, Inc. v. Panasiatic Travel Corp.,[22] the Court ruled that the vendor could go to court to demand judicial
rescission in lieu of a notarial act of rescission. However, an action for reconveyance is not an action for rescission. The Court
explained in Olympia:

The action for reconveyance filed by petitioner was predicated on an assumption that its contract to
sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show
that, indeed, no such cancellation took place at any time prior to the institution of the action for
reconveyance. xxx

xxx

xxx Not only is an action for reconveyance conceptually different from an action for rescission but that, also,
the effects that flow from an affirmative judgment in either case would be materially dissimilar in various
respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the
situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often
termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission
(rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing
of a period.[23]

In the present case, there being no valid rescission of the contract to sell, the action for reconveyance is premature. Hence, the
spouses Heruela have not lost the statutory grace period within which to pay. The trial court should have fixed the grace
period to sixty days conformably with Section 4 of RA 6552.

The spouses Heruela are not entirely fault-free. They have been remiss in performing their obligation. The trial court
found that the spouses Heruela offered once to pay the balance of the purchase price. However, the spouses Heruela did not
consign the payment during the pendency of the case. In the meanwhile, the spouses Heruela enjoyed the use of the land.

For the breach of obligation, the court, in its discretion, and applying Article 2209 of the Civil Code, [24] may award
interest at the rate of 6% per annum on the amount of damages.[25] The spouses Heruela have been enjoying the use of the land
since 1982. In 1995, they allowed their daughter and son-in-law, the spouses Pallori, to construct a house on the land. Under
the circumstances, the Court deems it proper to award interest at 6% per annum on the balance of the purchase price.
The records do not show when the spouses Ramos made a demand from the spouses Heruela for payment of the
balance of the purchase price. The complaint only alleged that the spouses Heruelas unjust refusal to pay in full the purchase
price xxx has caused the Deed of Conditional Sale to be rescinded, revoked and annulled. [26] The complaint did not specify
when the spouses Ramos made the demand for payment. For purposes of computing the legal interest, the reckoning period
should be the filing on 27 January 1998 of the complaint for reconveyance, which the spouses Ramos erroneously considered
an action for rescission of the contract.

The Court notes the reduction of the land area from 306 square meters to 282 square meters. Upon subdivision of the
land, 24 square meters became part of the road. However, Santiago Heruela expressed his willingness to pay for the 306
square meters agreed upon despite the reduction of the land area. [27] Thus, there is no dispute on the amount of the purchase
price even with the reduction of the land area.

On the Award of Attorneys Fees and Litigation Expenses

The trial court ordered the spouses Ramos to pay the spouses Heruela and the spouses Pallori the amount of P20,000 as
attorneys fees and P10,000 as litigation expenses. Article 2208[28] of the Civil Code provides that subject to certain exceptions,
attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of
the enumerated exceptions applies to this case. Further, the policy of the law is to put no premium on the right to
litigate.[29] Hence, the award of attorneys fees and litigation expenses should be deleted.

WHEREFORE, we AFFIRM the Decision dated 23 August 2000 of the Regional Trial Court of Misamis Oriental, Branch
21, dismissing the complaint for Recovery of Ownership with Damages, with the following MODIFICATION:

1. The spouses Heruela shall pay the spouses Ramos P11,300 as balance of the purchase price plus interest at 6%
per annum from 27 January 1998. The spouses Heruela shall pay within 60 days from finality of this Decision;
2. Upon payment, the spouses Ramos shall execute a deed of absolute sale of the land and deliver the certificate of
title in favor of the spouses Heruela;
3. In case of failure to thus pay within 60 days from finality of this Decision, the spouses Heruela and the spouses
Pallori shall immediately vacate the premises without need of further demand, and the down payment and
installment payments of P4,000 paid by the spouses Heruela shall constitute rental for the land;
4. The award of P20,000 as attorneys fees and P10,000 as litigation expenses in favor of the spouses Heruela and
the spouses Pallori is deleted.
Page 5 of 6
SO ORDERED.

Page 6 of 6